Download Chapter 21.2

Chapter 21.2
Factors Affecting Supply
Change in Supply
A change in supply occurs when producers
offer a different quantity of output at each
possible price. This might happen
because of changes in the cost of
production, in gov’t policies, in the
number of producers or in the
expectations of businesses.
When supply goes down, the supply curve
shifts to the left. When supply goes up,
the supply curve shifts to the right.
continued
Businesses use the four factors of
production goods and services. When
prices of these resources fall, costs of
production fall. Producers are then willing
and able to offer more of the product for
sale at each price. The supply curve shifts
to the right.
When prices of resources rise, production
costs rise. Producers are then willing and
able to offer more of the product for sale
at each price. The supply curve shifts to
the left.
continued
Productivity is the degree to which
resources are being used efficiently to
produce goods and services. Workers are
more efficient when they produce output
in the same amount of time. This reduces
the company’s costs. More products are
produced at every price, which shifts the
supply curve to the right. When
productivity falls, production costs go up.
The supply curve shifts to the left.
continued
Technology refers to the methods
or processes used to make goods
and services. New technology can
speed up ways of doing things, which
can cut a business’s costs. This
pushes the supply curve to the right,
showing that the business is willing
to supply more at the same price.
continued
Gov’t actions can affect the cost of
production, causing a change in supply.
In general, tighter gov’t regulations
restrict supply, causing the supply curve
to shift to the left. Relaxed regulations
lower the cost of production, shifting the
supply curve to the right.
To businesses, higher taxes mean higher
costs, pushing the supply curve to the left.
Lower taxes mean lower costs, shifting the
supply curve to the right.
continued
A subsidy is a gov’t payment to an
individual, business or other group
for certain actions. A subsidy paid to
a producer lowers the cost of
production. This encourages current
producers to remain in the market
and new producers to enter. When
subsidies are repealed, costs go up,
producers leave the market and the
supply curve shifts to the left.
continued
Producers’ expectations also affect supply.
If they expect strong consumer demand,
they will produce more. If they expect
weak demand, they will produce less.
A change in the number of suppliers
causes a change in market supply. As
more firms enter an industry, they
increase the supply in the market, shifting
the curve to the right. If some suppliers
leave, supply decreases, shifting the curve
to the left.
Elasticity of Supply
Supply elasticity is a measure of
how the quantity supplied of a good
or service changes in response to
changes in price. If the quantity
changes a great deal when prices go
up or down, the product is said to be
supply elastic. If the quantity
changes very little, the supply of that
product is inelastic.
continued
Supply elasticity depends on how
quickly a company can change the
amount it makes in response to price
changes. Products that cannot be
made quickly or that are expensive
to produce tend to be supply
inelastic. Products that can be made
quickly without large investments of
money or skilled labor tend to be
supply elastic.